In India, most of the cables that take television shows and news into homes are analog – an outdated technology in the West, where broadcasters rely on digital platforms.

India is moving toward digital. Meanwhile, the hundreds of local analog cable companies are causing problems for the industry.

For one, the analog platform means there’s not much bandwidth to distribute programs, driving up prices that television content producers must pay Indian cable companies.

The analog technology also makes it hard for media companies to know how many subscribers their content is reaching.

That’s important because Indian and foreign content producers are supposed to be paid more by local cable operators if their shows reach more viewers. National Indian cable operators’ profits also depend on subscriber numbers.

But media companies and the larger Indian broadcast-service companies have complained the local cable operators – many of them neighborhood firms with few subscribers – are underreporting viewer numbers to avoid passing on fees.

A recent report by KPMG and the Federation of Indian Chambers of Commerce and Industry found that cable operators declare only 15% to 20% of their subscriber base.

The report said that it will be near-impossible to fudge the numbers once India moves to digitization. That’s because each subscriber will then have a set-top box, making it easier for independent verification.

Until then, there’s little chance of U.S. cable giants like Comcast Corp. or Time Warner Cable investing in India, analysts say. “We feel that strategic investors would wait to see some execution of mandatory digitization before betting on the Indian cable sector,” Mumbai-based brokerage B&K Securities said in a note published earlier this month.

India had set an end-June deadline for mandatory digitization in four major cities but has pushed that back to Oct. 31 after cable companies complained they had been given inadequate time to make the switch.

The second phase of digitization is supposed to extend to 38 towns by the end of March, while the entire country is scheduled to be covered by the end-2014.

Over time, the outlook for the sector might attract foreign companies, who under the new rules are now allowed to own 74% in Indian cable and satellite TV operators, up from 49% previously, analysts say.

India has more than 100 million cable and satellite television homes. About two-thirds of these are serviced by cable and the remainder by satellite. That’s a tiny number in a country of 1.2 billion, and the sector is expected to grow strongly.

For now, the cable sector is rather unhealthy, fragmented into hundreds of small operators with large debts. A consolidation of the sector, involving the entry of foreign companies, could help raise capital needed to roll-out digitization across the country.

Mumbai-based brokerage Edelweiss Securities Ltd. says the recent changes in foreign-ownership limits were aimed at attracting capital to fund digitization, which it estimates could cost a total $5 billion.

In the long run, digitization could be a positive for the cable operators, who will be able to offer a wider range of shows to attract consumers.

The government, for its part, is hoping digitization will allow it to collect more accurately collect service tax from cable operators – a tax which is paid per subscriber.

Possible targets for future acquisitions include some of India’s larger national cable distributors such as Wire & Wireless (India) Ltd Den Networks Ltd. and Incable of Hinduja Ventures Ltd., analysts say. These companies were not immediately available for comment.

Hathway Cable & Datacom Ltd., which already has a foreign strategic investor in Providence Equity Advisors, is likely to see the private equity firm increase its stake to fund the second phase of digitization, says B&K Securities. Attempts to contact Hathway and Providence were not successful.

Of the satellite companies, Tata Sky and Videocon d2h are possible takeover candidates, the brokerage notes. Tata Sky is a joint venture between India’s Tata Sons Ltd., which has a 60% stake, Singapore’s Temasek Holdings, which has 10% and units of Star India which hold the remaining 30% share. (Star India is owned by News. Corp, which also owns the Wall Street Journal.)

A spokeswoman for Star India did not respond to a query about whether the company was interested in increasing its units’ stakes in Tata Sky.

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